If you have ever attempted to start up your own business, you know that being approved for a secured business loan to start it up can be a painful process. Depending on what bank you go through, or who you talk to within the bank, the process can take an immense amount of time, for very little return in the end. If you aren’t completely stable, with a strong credit score, or no collateral, what can you do?
You apply for an unsecured business loan, of course! Unsecured business loans are not as commonly applied within the business world but are a great way to kickstart your business when no one else will help you out. With quite a bit more leeway when applying comes to mind, unsecured business loans can be a great way to kickstart a business when you aren’t exactly on the right foot, to begin with.
What are unsecured business loans?
Unsecured business loans are exactly what their name implies: Loans that generally aren’t backed by anything, and are a bit shakier in terms of how they are handled. The main aspect that differs from a secured business loan is the usage of one thing: Collateral. With secure business loans, the primary holder of the loan is the usage of collateral or assets that can be used to pay off the lender in case something happens with the borrower, and they are not able to pay on time. With unsecured business loans, there is no collateral for the loan, thus being deemed unsecure.
What’s so great about unsecured business loans?
What makes unsecured loans is a number of benefits that they afford the borrower. For example, the amount that you can borrow is increased by an exponential amount. This is due to there not being any collateral that is being leveraged. Usually, the amount that is available to borrow is based on the amount of collateral that is available, or a small percentage thereof. So, without there being any collateral, you are able to negotiate much larger amounts to be used, instead of what you might get from a secured business loan.
Not only are you allowed to try for a larger loan amount, but the process to get approved is much faster as well. Consider this: The average time that it takes to get approval (Or just an answer back) for a secured business loan can be anywhere from three to four weeks. For an unsecured loan, the process can be between 48-72 hours. Depending on what kind of business you run, that difference of a few weeks can mean everything. The reason for this is because there is much less paperwork when applying for an unsecured business loan. This means there is less needed to sort through, which shortens the time for possible approval.
The primary reason that unsecured business loans rock is the fact that the constraints on how you use the funds are much. With regular secured business loans, they may only be used for what the lender deems appropriate. This means that the funds will only go towards what the lender deems appropriate, limiting everything that you might possibly need it for. With unsecured business loans, as long as it is not used for gambling, buying securities, or illegal activities, the money is free to be used however you’d like.
Downsides of Unsecured Business Loans
Although Unsecured business loans seem great and all, it must be remembered that they come with some high ties to possible issues. One of the big ones is the issue of a high-interest rate. No matter what kind of loans are given out, they come with an interest rate. With unsecured business loans, since there is no collateral, they are creating a big risk, thus they attempt to make sure it is worth their while as well. This is more a classic “Pay to skip the details” situation and must be known if you are attempting to gain an unsecured business loan.
Second is the length of time that you have to pay off the loan. Unlike most loans, which will generally be closer to several years, the repayment period for unsecured business loans can be closer to 1 to 1.5 years tops. Combine that short period with higher interest rates, and it could easily be a slippery slope to debt if you aren’t careful. This timeframe is generally non-negotiable, so understanding that you are locked into whatever plan you choose at the start is a must.
What is the best Unsecured Business Loan for me?
Depending on how much you need, there are a number of options. From unsecured term loans to short-term unsecured business loans, they all tend to vary on the amount they can give to you, as well as how high the interest rate is. To sort through them all, it is generally advised to find a middleman or third party that tracks and connects you with different lenders, like Finimpact, who hosts a number of different brokers, lenders, and affiliate programs that are at the tip of your finger.
Will I make it through the process? What should I expect?
The process itself depends on a number of things. Although you do not have to establish collateral, your credit score will be taken into account. Some lenders tend to be more lenient but will give you a much higher interest rate depending on whether your credit score is stable or unstable. There is no surefire way to tell exactly how much one will charge, so it’s best to search for a reliable third party, such as Finimpact, who will take your input and needs, and sort it all for you, giving you the best possible matches to your needs.
During the whole process, make sure to always have someone knowledgeable by your side while making these transactions. A lawyer is generally the best one to go with, as they will help you keep track of what is going on, as well as ensure that you will not be liable for any scams, such as the lender being able to directly pull your money out of your account. Doing your own research will help you catch the potholes in your plans before they are used against you.
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